FTC will pay 139,357 cramming victims an average of $39 each

The crammers—Inc21—allegedly made $19M in five years through the shady practice.

One day before a potential government shutdown, the Federal Trade Commission announced that it was mailing 139,357 checks collectively worth $5.4 million to consumers and businesses “who were victimized by a massive fraudulent operation that placed unwanted charges on their telephone bills”—aka cramming—by a company called Inc21.

Ars has been covering the shady practice of cramming for five years. In this scheme, consumers are billed for services that they never asked for, likely ignored, and yet continue to be billed for. (Ars editor Nate Anderson even detailed his own experience with cramming.) It happens in the ISP industry, in the landline telephone industry, and increasingly in the mobile phoneindustry. Earlier this year, the FTC filed its first civil suit against Wise Media, LLC, a Georgia company accused of consistently engaging in the practice.

In regard to Monday's action, Inc21’s owners pled guilty back in December 2012 to related charges initially brought in 2010. Back then, Inc21 was accused of fraudulently raking in $19 million over five years through cramming.

“The average amount of the refunds will be approximately $39, however amounts will vary based on how much money was lost,” the FTC wrote in a statement. If you happen to receive one of these checks, do let us know.

Given how much fraud occurred, it's puzzling to me why 3rd party billing was allowed on phone bills at all.

Because the phone companies made money on it too. Crammer had to pay a percentage of the fees charged back to the phone company, so they all just went with it. It was really the best of both worlds for someone like AT&T: A third party insulates you from all of the illegal behavior and you get to make millions off of the fees. Sure it might hurt your reputation, but you're AT&T, so that's pretty much impossible to do. The only thing with lower approval ratings is Congress.

A lot of why it's allowed is there are a legit number of services that actually use this, and customers find easy to use. Collect calls are a perfect example. I do not know if they still reject all third party billing, but for a long time Comcast did so, and it meant that people could not receive collect calls. The most common case of this when I was working there is people trying to get calls from relatives/etc who are incarcerated. They either had to get the equivalent of collect call calling cards for their relatives, or set up other third party services, and it was all a gigantic hassle for everyone involved.

So let me get this right. If I steal music from a company and get caught, I can get fined thousands of times what the value of the actual music was. But if a company steals from me, they might have to pay 25% back and get a slap on the wrist. How screwed up are we?

So let me get this right. If I steal music from a company and get caught, I can get fined thousands of times what the value of the actual music was. But if a company steals from me, they might have to pay 25% back and get a slap on the wrist. How screwed up are we?

So let me get this right. If I steal music from a company and get caught, I can get fined thousands of times what the value of the actual music was. But if a company steals from me, they might have to pay 25% back and get a slap on the wrist. How screwed up are we?

The RIAA could theoretically get a $1bn judgment against your music collection; but they'd never be able to collect anything approaching its face value. Likewise the FTC can seize and return all of the illegally gotten money the scumbags collected; but the odds are that before being busted they spent a huge chunk of it. As a result the FTC is only refunding the chunk of money they actually were able to get back from the scumbags. When they get out of prison in a few years the scumbags will have the other $14m lingering over them; but the odds of them ever earning enough money to pay a meaningful amount of additional restitution are slim to none. In both your hypothetical case and the crammers, if anyone finds an offshore account with a big pile of money that was missed during the initial bank account hoovering, it'll be drained as well. The RIAA dirtbags will get to give themselves a bigger bonus that year, and the FTC will issue additional restitution checks.

So let me get this right. If I steal music from a company and get caught, I can get fined thousands of times what the value of the actual music was. But if a company steals from me, they might have to pay 25% back and get a slap on the wrist. How screwed up are we?

Come now, you can give it more thought than that. If you personally steal you pay a price.

For the companies there are three types involved. The enabling company Verizon, AT&T etc.; the crooks and crammers; legitimate third party billers.

For people using legitimate billers there are no issues with either the providers or billers.

For people getting ripped off by the crammers most of the blame goes to the crammers and some accrues to the providers in the sense that they are not policing their services properly.

So now lets get to criminal penalties. Music theft: big fine for you in the rare case of getting caught, boohoo. Crammer rip-offs: jail time if you commit fraud. Providers: perhaps a fine if wrongdoing can be shown, however this is unlikely as there are legitimate uses for third party billing.

Finally, lets look at your apples and oranges comparison. "Thousands of times what the value of the actual music was" is not accurate. People are getting charged per infringement which adds up in peer to peer. Still, in a recent case the lady could have settled her 10? songs for $5000 but chose to fight until she could rack up penalties and lawyers fees for a nice bankrupting 6 figure verdict.

Next, some bad actor crams a lot of people for lets say $40 million but only $10 million is recoverable after they are shut down. I would expect my fraud recovery to amount to 25% in that case.

Do you see how the two amounts are for completely different things? One is a penalty to deter you and others from stealing. The other is only getting a small part back of what you lost to theft from a now bankrupt and defunct business. Even if the law allows penalties of thousands of times the cramming, you still only get 25% back because there is no way to recover the 75% they already spent.

Yes I see the difference--in the first case, they have the power and ability to threaten a crushing penalty for sharing songs because their just fighting an individual; whereas our laws are powerless to stop the the crammers from keeping 75% of their stolen gains simply because they pull the strings through a corporate shell...

So let me get this right. If I steal music from a company and get caught, I can get fined thousands of times what the value of the actual music was. But if a company steals from me, they might have to pay 25% back and get a slap on the wrist. How screwed up are we?

Come now, you can give it more thought than that. If you personally steal you pay a price.

[...]

Do you see how the two amounts are for completely different things? One is a penalty to deter you and others from stealing. The other is only getting a small part back of what you lost to theft from a now bankrupt and defunct business. Even if the law allows penalties of thousands of times the cramming, you still only get 25% back because there is no way to recover the 75% they already spent.

The real problem is that the process is too slow. Obviously, there must have been people who noticed the cramming right away. But the authorities (FTC in this case) have a habit of not taking action until thousands of consumer complaints have been received, and meanwhile the culprit is allowed to continue raking in money (and spending it). Clearly, the phone companies are complicit too: there must have been complaints early on, so why did they not investigate and stop the billing? Apparently because the law exempts them from any responsibility whatsoever as long as the biller files the right forms.

By the way, wouldn't cramming fall under the FCC instead of FTC? Or did $19 million not reach their threshold for taking action?

So let me get this right. If I steal music from a company and get caught, I can get fined thousands of times what the value of the actual music was. But if a company steals from me, they might have to pay 25% back and get a slap on the wrist. How screwed up are we?

Come now, you can give it more thought than that. If you personally steal you pay a price.

[...]

Do you see how the two amounts are for completely different things? One is a penalty to deter you and others from stealing. The other is only getting a small part back of what you lost to theft from a now bankrupt and defunct business. Even if the law allows penalties of thousands of times the cramming, you still only get 25% back because there is no way to recover the 75% they already spent.

The real problem is that the process is too slow. Obviously, there must have been people who noticed the cramming right away. But the authorities (FTC in this case) have a habit of not taking action until thousands of consumer complaints have been received, and meanwhile the culprit is allowed to continue raking in money (and spending it). Clearly, the phone companies are complicit too: there must have been complaints early on, so why did they not investigate and stop the billing? Apparently because the law exempts them from any responsibility whatsoever as long as the biller files the right forms.

By the way, wouldn't cramming fall under the FCC instead of FTC? Or did $19 million not reach their threshold for taking action?

Given how much fraud occurred, it's puzzling to me why 3rd party billing was allowed on phone bills at all.

Because the phone companies made money on it too. Crammer had to pay a percentage of the fees charged back to the phone company, so they all just went with it. It was really the best of both worlds for someone like AT&T: A third party insulates you from all of the illegal behavior and you get to make millions off of the fees. Sure it might hurt your reputation, but you're AT&T, so that's pretty much impossible to do. The only thing with lower approval ratings is Congress.

Exactly. It's a win-win for everyone (well, except the consumer, but who gives a shit about them?).

Due to my credit card info being stolen in the recent Vendini hack, I now have a free "credit watch" service for a year. Just last week I found that some collection agency has reported me as being "delinquent" with all the credit bureaus. For what? Back around 2006 I had a dedicated fax line at home. Only had a fax machine plugged in. I do not think the machine became self-aware and started making calls on its own. When I cancelled the line, there was a $6 charge from a 3rd party conference calling service.

Argued with VZ, they played the "we're just the billing agent" thing, I refused to pay. VZ kept sending bills, in 2007 I called them and they brought the third party on the call. All of us agreed it was an "error" and that was that. Now I'm getting collection letters for $40 and they reference this old VZ phone number - it's the same account with a bunch of penalty charges, collections charges, etc. So now I have a ding on my credit report on some shit I never bought.

Total BS IMHO that 3rd parties have carte-blanche when adding charges to your telecoms bills.

So let me get this right. If I steal music from a company and get caught, I can get fined thousands of times what the value of the actual music was. But if a company steals from me, they might have to pay 25% back and get a slap on the wrist. How screwed up are we?

Come now, you can give it more thought than that. If you personally steal you pay a price.

For the companies there are three types involved. The enabling company Verizon, AT&T etc.; the crooks and crammers; legitimate third party billers.

For people using legitimate billers there are no issues with either the providers or billers.

For people getting ripped off by the crammers most of the blame goes to the crammers and some accrues to the providers in the sense that they are not policing their services properly.

So now lets get to criminal penalties. Music theft: big fine for you in the rare case of getting caught, boohoo. Crammer rip-offs: jail time if you commit fraud. Providers: perhaps a fine if wrongdoing can be shown, however this is unlikely as there are legitimate uses for third party billing.

Finally, lets look at your apples and oranges comparison. "Thousands of times what the value of the actual music was" is not accurate. People are getting charged per infringement which adds up in peer to peer. Still, in a recent case the lady could have settled her 10? songs for $5000 but chose to fight until she could rack up penalties and lawyers fees for a nice bankrupting 6 figure verdict.

Next, some bad actor crams a lot of people for lets say $40 million but only $10 million is recoverable after they are shut down. I would expect my fraud recovery to amount to 25% in that case.

Do you see how the two amounts are for completely different things? One is a penalty to deter you and others from stealing. The other is only getting a small part back of what you lost to theft from a now bankrupt and defunct business. Even if the law allows penalties of thousands of times the cramming, you still only get 25% back because there is no way to recover the 75% they already spent.

Well, considering the telecoms were complicit in the fraud, let them pay whatever the FTC couldn't recover. Why is it ALWAYS the consumer that has to take it in the ass?

And my example isn't really apples to oranges. My point was that when a company gets into trouble, they shut down and thats the end of it. No one goes on suffering. When a citizen gets into trouble, we ruin the rest of their lives over money they will probably never be able to repay. There are way to many protections for companies and way too few for consumers.

Well, considering the telecoms were complicit in the fraud, let them pay whatever the FTC couldn't recover. Why is it ALWAYS the consumer that has to take it in the ass?

And my example isn't really apples to oranges. My point was that when a company gets into trouble, they shut down and thats the end of it. No one goes on suffering. When a citizen gets into trouble, we ruin the rest of their lives over money they will probably never be able to repay. There are way to many protections for companies and way too few for consumers.

I agree with making the telecoms pay up the missing losses and I would add the penalties onto them as well. Not mentioned in this article is the fact that crammers made up an astounding 95% (iirc) of all third party billing fees.

As for no one going on suffering when a company is shut down, I think you are ignoring the part where criminal behavior in a company leads to jail time for those involved. Additionally, there could be fines as well. That 25% may be purely assets recovered or it may include fines. A company is not just some abstract thing, there is at least one human involved in there somewhere.

So let me get this right. If I steal music from a company and get caught, I can get fined thousands of times what the value of the actual music was. But if a company steals from me, they might have to pay 25% back and get a slap on the wrist. How screwed up are we?

Just a guess, but I suspect that Inc21 will be out of business and that they don't have $19 million to pay back to those they ripped off. It sounds like they also used offshore telemarketers to which likely took a sizable portion of the money and are out of direct reach of the FCC.

More money might be recovered by going after some of the individuals involved through civil court, but I don't think it is uncommon that those that steal from others can't pay it back when they are finally caught.

the Federal Trade Commission announced that it was mailing 139,357 checks

Hang on. They're seriously mailing checks? As in, real dead-tree wisps of paper in real dead-tree enveloppes? For an average of less than 40$ a pop?

Seriously?

If 3rd-party billing is a reasonable way to make users pay for something, why didn't they use 3rd-party billing to reimburse them?

After several years a significant fraction of the people who were fleeced probably don't have the same numbers any more. This appears to have been a landline scam ran from 05-10; and between people moving and cutting the cord (between 2008- and 2011 landlines market share dropped from 79 to 64% of households; assuming the trend stayed linear probably just over 50% now) a lot of the numbers they had used are no longer valid.

Having to call the phone company to have them remove yet another crammed company every few months was one of the driving forces behind dropping my landline actually. It was always a pain in the butt because the crammer always had some record they provided "It says here that you signed up for this useless and nonfunctional service at 4:47AM three Tuesdays ago, are you sure you didn't just sign up by accident? I mean who could resist the siren call of a $20/month voicemail service that doesn't actually do anything?"

So are these refunds coming from Inc21 or from tax-payer money - seeing as how you said the FTC was paying out the money.

Mighrt want to clarify that Cyrus.

The money the FTC is disbursing is from the money the Feds managed to recover from Inc21. The remainder was either spent running the scam, blown by the scammers, or possibly was hidden away so well none of the Feds were able to find it. Unfortunately for the scammers, once out of jail the feds will keep watching them like hawks; so even if they did manage to hide some money if they try to use it to supplement their excon de facto mandatory minimum wage jobs it'll just get seized and they'll be punished again for not having turned it over years ago.

A lot of why it's allowed is there are a legit number of services that actually use this, and customers find easy to use. Collect calls are a perfect example. I do not know if they still reject all third party billing, but for a long time Comcast did so, and it meant that people could not receive collect calls. The most common case of this when I was working there is people trying to get calls from relatives/etc who are incarcerated. They either had to get the equivalent of collect call calling cards for their relatives, or set up other third party services, and it was all a gigantic hassle for everyone involved.

Whether that outweighs the fraud is a whole separate question.

I believe you're mistaking 3rd party calling with 3rd party billing. The former allows somone to call from one number and bill another. I had some kid call long distance a few times and bill my number. you have to block both 3rd party calling and 3rd party billing to prevent both types of fraud. I had 3rd party billing blocked and had a company start charging my phone for a voice mail service and claim that my late wife signed up for it 3 months after she died.